With the rapid development of China’s medical device industry, the Measures on Supervision and Administration of Business Operations of Medical Devices, since its promulgation in 2014, has undergone two amendments in 2017 and 2022, in the spirit of continuous reform of the regulatory regime for the sale of medical devices. The newly revised Measures on Supervision and Administration of Business Operations of Medical Devices (医疗器械经营监督管理办法,“the New Measures") came into force on May 1, 2022, replacing its previous versions. Furthermore, pursuant to the Regulations  on Supervision and Administration of Medical Devices (医疗器械监督管理条例, “the Regulation"), the New Measures put forward new requirements for medical devices businesses to further “strengthen the supervision and administration of business operations of medical devices, standardize medical devices business activities, and ensure the safety and effectiveness of medical devices"  (Article 1).

Under the New Measures, an applicant for the registration or record-filing of a medical device may sell medical devices of its own volition or entrust the sale of the medical device for which it undergoes the formalities of registration and record-filing to medical device business enterprises (Article 3). This reinforces the concept of a marketing authorization holder (MAH) in medical device production.

Before 2017, only enterprises with medical device production licenses could apply for registration or record-filing. The 2021 amendment of the Regulation completed the separation between a marketing license and a manufacturing qualification, and the New Measures take it one step further to formally unbundle the production and sales of medical devices.

Under the New Measures, all registrants/record-filing entities of medical devices may expand the market with the assistance of entrusted business enterprises, and business enterprises with professional marketing capacity are no longer blocked from commercial opportunities due to the lack of capability in medical device production.

The New Measures reduce the procedural burden and cost for enterprises, in accordance with the principles of reform, to “delegate power, streamline administration and optimize government services" (放管服). Specifically, the New Measures clarify that business operations of Class II medical devices may be exempted from record-filing if safety and effectiveness of the product are not affected by the circulation process, with detailed product directory released by the National Medical Products Administration (NMPA, 国家药品监督管理局) (Article 25). The most recent directory was released by the NMPA on June 30, 2021. Similarly, institutions engaged in the storage, allocation and supply of not-for-profit contraceptive medical devices and registrants/record-filing entities selling medical devices for which it has undergone registration or record-filing at its domicile or production address are no longer required to apply for business permits for medical devices or record-filing.

Some of the other highlights in streamlining the application process are:

1. The requirement to provide a copy of the business license and “other supporting materials" are removed for application of a business permit for Class III medical devices (Article 10);

2. The review and approval period for business permits is reduced from 30 working days to 20 working days (Article 13);

3. Onsite inspection will only be conducted when necessary, after the regulatory authority accepts the application for a business license, record-filing, alteration or renewal (Articles 13, 15, 16, 22, 24);

4. For setting up warehouses across districted cities, the authority issuing the business license for medical devices or the record-filing authority may notify the medical products administrative department at the district where the warehouses are located (Article 17); and

5. Enterprises that concurrently file an application for a business permit for Class III medical devices and undergo the record-filing proceeding for business activities involving Class II medical devices, or who have already obtained a business permit for Class III medical devices and undergo the record-filing proceeding for business activities involving Class II medical devices may be exempted from submitting relevant materials (Article 23).

While there is relaxation of the application process on the one hand, the New Measures strengthen enterprises’ responsibility for quality and capacity by requiring the establishment of a quality management system and control measures that cover the entire circulation process including procurement, distribution, and after sales service. Meanwhile, the New Measures mandate self-inspection for business enterprises in order to facilitate keeping the regulatory authorities informed and to carry out targeted law enforcement inspections.

More specifically, under the New Measures:

1. Medical device business enterprises must establish and implement a product traceability system, and implement a unique identification system for medical devices in accordance with relevant rules (Article 30);

2. Information of product (name and certification) and applications for registration and record-filing of medical devices must be included in the purchase inspection record and sales record respectively (Articles 32 and 38);

3. Medical device business enterprises must provide after sales service. If the after sales service is provided by suppliers or other institutions, the business enterprises must also strengthen management to ensure the safe use of the medical devices after sale (Article 39);

4. Medical device business enterprises are required to assist the applicants in registration and record-filing of medical devices, monitor adverse events of the medical devices they operate and report accordingly to the relevant authority (Article 41);

5. The scope of business enterprises subject to self-inspection is expanded from Class III medical device business enterprises only to all enterprises engaged in the medical device business (Article 44).

The New Measures implement notable modifications to its 2017 version regarding the regulatory framework as follows.

The medical products administrative departments must develop annual inspection plans, specify the focus of supervision, inspection frequency and coverage, and organize the implementation thereof. It is worth noting that the annual self-inspection report submitted by business enterprises must be an important basis for the administrative department to formulate inspection plans.

Extended inspection is also a newly introduced mechanism. The medical products administrative department may conduct extended inspections on other relevant entities and individuals who provide products or services for business activities involving medical devices when necessary for quality and safety risks control of medical devices. For example, the administrative department may conduct extended inspections of entities that provide services such as the inspection and sterilization of medical devices to verify the operational status of an enterprise who sells medical devices.

The medical products administrative department must conduct regular risk consultations and evaluations based on the supervision and inspection, sampling inspection of products, monitoring of adverse events, filing of complaint and tip-off, administrative punishment, etc., and effectively conduct investigation, prevention and control of potential safety risks of medical devices. The enterprises identified as key inspection targets in the risk consultation process may also be the key inspection targets of the administrative department.

Medical device business enterprises’ license record-filing, supervision and inspection results, the investigation into and punishment of illegal acts, random inspection of quality, self-inspection reports, records of misconducts, and complaints and tip-offs must be monitored and recorded in the credit files established by the medical products administrative departments. For enterprises with poor credit records, the medical products administrative department must increase the frequency of supervision and inspection, and strengthen the punishment against dishonesty.

Additionally, the “whistle-blowing" mechanism puts business enterprises under the supervision of the general public, in addition to the regulatory supervision.

Compared with the 2017 version, the New Measures provides for scenarios where penalties apply and adjusts the legal liabilities accordingly.  Article 68 of the New Measures provides as a ground for punishment, for violating the Regulation by “providing specialized storage and transportation services for other medical device production and business enterprises". The violation is subject to an order by the medical products administrative department to provide remedies within the time limit prescribed. Enterprises that refuse to provide remedies will be subject to a fine ranging from RMB10,000 to RMB50,000, and severe violations are subject to a higher fine ranging from RMB50,000 to RMB100,000.

The New Measures no longer state that “the salesperson dispatched by a medical device business enterprise fails to provide a power of attorney as required by the Measures" is an illegal cause. The New Measures greatly increase the penalties for original violations. The maximum penalty for failure to submit the required annual self-examination report may be up to RMB100,000. The maximum penalty for failure to change the name, legal representative or responsible person of the enterprise in accordance with the New Measures may be up to RMB30,000.

The New Measures adopt a policy of lenient entry and strict exit for medical device business enterprises, which emphasize that supervision has changed from prior supervision to process supervision. At present, most Chinese enterprises are concentrated in the low value-added and low-end medical equipment markets. For high-end medical devices, China is still greatly dependent on imports from foreign enterprises.

Notably, the share of foreign brands in the high-value medical devices segment has reduced from approximately 80% to 70% in the last decade. The shrinking market share of foreign enterprises in the Chinese market is attributed not only to local governments’ support for domestic manufacturers, in policy regarding R&D, market access and downstream procurement, but also to the enhanced compliance obligations that are not advantageous to foreign enterprises. For instance, in recent years, the NMPA has significantly increased the frequency of inspections on foreign enterprises, and this trend is likely to continue into the future. The promulgation of the New Measures may contribute to accelerating the transformation of domestic enterprises to middle and high-end industries, and as a result, exerting more pressure on foreign enterprises.

The New Measures and policy developments in the Chinese market present both opportunities and challenges for foreign enterprises. On the one hand, the tightened regulatory system will push primitive and poor quality products out of the market to free up space for the development of both Chinese and foreign-invested enterprises, which is to the latter’s advantage because they tend to invest more in R&D; on the other hand, the lenient entry and strict exit standard will promote encouraging competition amongst enterprises in the market of medium and high-end products.

With heightened requirements and stricter liability under the New Measures, business enterprises of medical devices must conduct operations prudently and in strict accordance with the Measures and other relevant laws and regulations in order to minimize compliance risks.

Enterprises should pay attention to the requirements under the product traceability system, unique identification system, adverse event monitoring system, and extended quality management self-examination system, which have all heightened the standards for internal management. Yet, such requirements also bring benefits to medical device business enterprises. For example, normal adverse event monitoring and self-inspection systems can help medical device business enterprises detect loopholes and prevent them from escalating into more severe quality control risks.

Furthermore, the Measures prescribe consistent compliance obligations for registrants/record-filing entities throughout the whole circulation process. Before entrusting sales to a business enterprise, registrants/record-filing entities of medical devices must strictly examine the business qualification and quality management capacity of such enterprises and supervise the whole process of sales activities.

The New Measures remove the requirement that salespersons of business enterprises of the medical devices must provide authorization with the official seal stamped by the business enterprises of medical devices. Nevertheless, since liability arising from such business activities may still be attributed to the registrants/record-filing entities of medical devices, enterprises may expose themselves to certain regulatory risk by failing to monitor and supervise the sales activities of sales personnel. While the management and training of sales staff may require significant investment in time and its people, it is critical to form a more comprehensive risk prevention mechanism.

For foreign enterprises, the Chinese market has changed significantly over time but still has plenty of opportunities. With the changing regulatory and competitive environment in the Chinese medical device market, foreign enterprises with an existing presence in China should consider maintaining their existing competitive advantage and create new market growth via localization efforts, part of which entails integrating fully to cope with Chinese regulatory requirements. Partnering with local enterprises allows foreign enterprises to connect to their partners’ local ecosystem of suppliers, customers, and government relationships, which helps enterprises become more rooted in the Chinese market. For foreign companies with plans to enter into the Chinese market, they should fully study and understand the Chinese regulatory framework and formulate a comprehensive compliance system.